Western and Eastern Europe is forecast to see minimal or negative GDP growth in the 1st Q of 2023:
Look for European energy (oil/natural gas/electricity) prices to increase dramatically in the coming winter months. The Euro Zones economies have been especially devastated by the ongoing war in Ukraine. The resulting natural gas shortages and energy price spikes have damaged most economies across Europe.
The value of the Euro has been progressively declining against the US dollar for the best part of 6 months. Some economists are projecting that the Euro could fall between 0.90 and 0.95 to the US dollar in the next 3 months. This, of course, will impact inflation in Europe and could be the catalyst to increase construction-related materials.
Germany is facing some serious challenges related to the importation of Russian gas. The German chemical industry is extremely dependent on Russian gas supplies. The jury is still out on how this will culminate in the next 6 months.
The forecast for construction inflation in the Euro Zone is 10.5% to 11%. In Belgium, it is 10.7%, to 10.9%, Spain is forecast to see 7.3% to 7.7%, Italy is forecast to see inflation in the 11.7% to 11.9%, and the Netherlands is expected to experience 14.1% to 15.1% escalation in range in the next 1st Q of 2023.
The UK pound remains weak against the US dollar on growing concerns regarding the stability of the UK finances. This could further increase inflation, as oil and many imported items are priced in US dollars. The UK pound has fallen by more than 7.5% against the US dollar in the last 3 months.
Construction-related inflation in the UK is forecast to increase from 10.7% to 11.7% in the 1st Q of 2023. The Euro Zone country’s salaries and construction hourly rates are forecast to increase by 2.9% to 3.3% in 2023.
House building and commercial construction work, such as hotels, offices, warehouses, and shopping malls, have also experienced a slowdown in the last three months.
The rising cost of construction materials and worries over the likelihood of a full-blown recession has resulted in a loss of confidence throughout the UK construction sector.
European economies and their construction sector will face a challenging period in the 1st and 2nd Q of 2023. Inflation is surging in some northern European countries. Estonia, Germany, Latvia, Lithuania, Denmark, and Poland are seeing rates ranging between 7.5% and 10%, energy prices have risen by as much as 35% in the last 6 months, and the cold winter months are still in front of these countries.
The average cost of a liter of petrol in the UK has risen by more than 40% in the last 3 months. Will fuel prices keep escalating? Probably. Other European countries have experienced similar increases.
In a sign that the Russia – Ukraine conflict is really dangerous, Scandinavian historically neutral countries Sweden and Finland are now contemplating/exploring joining NATO military pact.